Hammitt, James K. (2026) Judging Social Priority and the Marginal Utility of Income Among Individuals. TSE Working Paper, n. 26-1707

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Abstract

Weighted benefit-cost analysis is receiving increased attention as a method to incorporate concerns about the distribution of policy effects across individuals. Weights are intended to reflect interpersonal differences in the effect of income on wellbeing (the marginal utility of income) and the social value of improving the wellbeing of different individuals. Lacking an objective method for comparing differences or levels of wellbeing between individuals, multiple approaches to estimating how the marginal utility of income depends on income or other factors have been developed, but each of these requires strong assumptions that are not always recognized. This suggests that weights must be chosen judgmentally. Holding income constant, weights are likely to be smaller for older people, due to shorter remaining life expectancy and other factors.